Coles hit hard by ACCC search powers

Using its legal powers to compel companies to provide information, the Australian Competition and Consumer Commission sent a “high level” letter to Coles last year, asking how the company negotiated prices with its suppliers and why it replaced branded groceries with its house labels.
Photo: Rob Homer

The Australian Competition and Consumer Commission has flooded Coles with demands for private correspondence as part of its investigation into allegations of anti-competitive conduct by supermarkets.

Using its legal powers to compel companies to provide information, the ACCC sent a “high level" letter to Coles last year, asking how the company negotiated prices with its suppliers and why it replaced branded groceries with its house labels.

A similar letter was also sent to Woolworths.

Since then Coles, a unit of
Wesfarmers
, has been served more legal notices demanding detailed information, including sales data, profit margins and emails between its buyers and food manufacturers who provide them with groceries.

A source expressed concern that the ACCC’s broad inquiries could end up wrongly implicating the entire company.

“In an organisation where you’ve got this many buyers, is everyone going to be lily white, no matter how good your compliance?" the executive said.

“We have 100,000 emails in this place in a year. Are you going to find something? Yeah probably – if you read any email out of context."

Coles and
Woolworths
, which control more than two thirds of the industry, hope to co-operate with the ACCC to ward off prosecutions for misuse of market power and unconscionable conduct. They fear legal prosecutions are more likely.

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“We think he’s talked himself into a position of having to do it," said one executive about ACCC chairman Rod Sims.

At a Senate committee hearing this month, Mr Sims said that about 50 suppliers had complained about supermarket pressure on them to push down prices. This behaviour “does not conform to acceptable business practice and may be unconscionable or a misuse of market power," Mr Sims said. The complaints had a “high degree of consistency," he said.

Mr Sims has focused on the potential damage to suppliers from the popularity of home-brand products since he became chairman of the ACCC in 2011. Economists say the growth in supermarket-owned labels could squeeze out competitors and increase the supermarkets’ market power.

After obtaining information from the suppliers, the ACCC broadened its investigation to include the treatment of suppliers more generally.

Spokespeople for Woolworths, Coles and the ACCC declined to comment.

Allegations of misuse of market power are difficult to prove.

The High Court ruled in a case involving
Bora
l that as long as a company’s actions had a “business rationale", it did not matter if the company was a powerful player in its market.